Tuesday, June 28, 2011

Greece ready to Default

Greece will default, maybe not today, but it is only days or weeks away. Odious Debt, a concept suggested in a 1927 treatise by Alexander Nahum Sack dwells on the principle that debt accumulated by a Sovereign Country doesn’t have to be repaid if it was borrowed for use that did not benefit the State and its citizens. With that in mind, all banks need to think twice about whom they loan to.

Right now Greece has problem borrowing money, the rates are outrageously high, and they are a bad credit risk. But what happens if they default? The bonds at that point probably go to about being worth 10% of face value. The Greek government could redeem those bonds at 10 cents on the dollar. Not a bad deal. Of course, the question comes up; do they really need to redeem the bonds at 10 cents on the dollar? Probably not.

Then after the default, their credit rating might surpass that of Iceland.

The world banks want their loans to be repaid. Better terms and more years to pay doesn’t make the debts any more manageable. The debts will not be paid. But that concept eludes our international bankers. This is just hanging paper, over a bad financial transaction. There comes a point when kicking the can down the road no longer has any appeal, it ceases to ameliorate the problem.

Greece has arrived at its final destination. Repudiation is the next step and from there, better times for the country. The repudiation pretty much ruins anyone with retirement savings, they are gone. Everyone gets to start over again. If you are 75, the idea might not be greeted with much enthusiasm.

After Greece defaults, the game is pretty much over. Do we cover their debts to keep the financial ball rolling? If so, what stops the rest of the PIIGS from queuing up?

Of course, could it be, that maybe the bail out money being used to finance Greece’s bailout, is from the funds deposited by the USA in the IMF? Why do I get the feeling that the answer is yes? Maybe, because the Germans have no desire to finance the spendthrift Greeks?

The headline could read “Bernanke Finances Greek Bailout.” Of course I could be wrong. It is all Greek to me.


Anonymous said...

the greeks are known for being pederasts. looks like they are going to cornhole those little boy bankers.

Jim in San Marcos said...

Hi Anon 10:46

I think who gets nailed next is Mr and Mrs Pederasts. From there, the Greeks will burn down the house of their favorite legislator. The "little boy bankers" want more than a snickers bar and a coke.

No Cigar for the analogy, corn cob maybe ;>)

Anonymous said...

Maybe the EU/ECB and the IMF will be able to come up with another creative solution to allow themselves and the Greeks to kick the can down the road for a few more miles. Let's fact it, they are desperate to protect the EU and the euro as they know this whole experiment could unravel. The EU will either shrink in membership or break up in full and all countries will go back to a national currency.

When this happens the euro won't be a competitor for the USD any longer... just the yen. This will make the USD stronger and enable it to hold the world reserve currency status for a while longer.

We don't know how deeply US banks are into PIIGS. And we are joined at the hip with Britain (and we don't know how deeply the UK banks are into PIIGS debt either). When Greece finally does topple there could be some repercussions over here.

I consider PIIGS to be a series of dominoes that will systematically start falling down. The global economy may have made the pond into a small puddle so one of those dominoes could knock some of the US's dominoes down as well.

With all the chicanery, rule changing, intervention, etc. done by governments it is hard to tell where and when the chips will fall.

It is like having someone who is a vegetable on life support for years and years. Give everyone a break and pull the plug! Let nature (free markets) take their course and clean out the excess and corruption and let's get back to a normal life.

dearieme said...

The Greeks can bring down German and French banks, on the face of it; but if it's true that they in turn have largely insured against the Greek default risk with American banks, then I can see what Ben's worries are.

frakrak said...

Read somewhere Greece has 300bn in gold reserves/foreign reserves and could pay off their debt and have something left over for a nice holiday? Still hoping the U.S. comes out on top of this mess,

Anonymous said...

Everybody, every bank is connected on a global level now. Credit default swaps, et al. When Greece goes down banks in Netherlands, France, Germany, England, USA, etc. will get hurt. Plan on a great global unraveling and recession/depression within the next decade.

The Sorry To Give You Doom & Gloom Guy

Jim in San Marcos said...

Hi Anon 5:02

I think you're right only it won't take another 10 years. The Credit Anstalt Bank Collapse in 1931 kicked the wheels off of the world banking system during the first Great Depression.

So far right now we are in the "Greatest Recession since the last Great Depression."

During the Great Depression, they legalized Booze, during this one, they may legalize Pot. As a side note, cocaine was the drug of choice during the great depression. What it did to people back then,left a lasting impression. Too much money gets just about anyone in trouble.

Its the "too much money" part that is about to end. Are you ready???

Jim in San Marcos said...

Hi Anon 10:10

I've maintained for two years that the Euro will collapse. It is an economic currency that the politicians can't fiddle with. And they want to fiddle with it in a bad way. Remove the ability of the politicians to deliver pipe dreams, and they system has to collapse.

When the plug gets pulled, it is the end user that suffers and that is you and me. We can argue over who did it to us, but in the end, our mindset will have to change; expect less and hope it won't cost more.

Jim in San Marcos said...

Hi Dearieme

Nice to hear from you.

I do think that the insurance bit is overdone with Greece. Nobody is going to pay the claims. These Insurance companies wrote the policys and took the premiums and are long gone. I'll bet most of them are just post office boxes.

Common sense suggests that the insurance premiums for Greece would be too high to make it worth your while.

I do believe that our dollars are behind the Greek bailout. Ben and Tim are the key US players for the IMF. Nothing can be done without their consenting 17% vote.

Jim in San Marcos said...

Hi Frakrak

You need to ask yourself one question in regards to Greece: Pay off old debts by selling gold or stiff the lenders and use the gold for items you want to purchase in the future?

Plus a lot of listed gold reserves are IMF statistics. And they are not worth the paper they are printed on. Of course the IMF is the biggest financial joke (scandal) going, They are like Freddie and Fannie, only SUPER-SIZED.